Common Causes of Small Business Failure and How to Avoid Them

Posted by Factor Funding Co. on June 15, 2012

A large number of small businesses go under within just a couple of years after opening. While some of these failures cannot be avoided many can if the owners take the time to learn about the typical causes of small business failure. Learning about the possible factors that may cause a business to fail can help entrepreneurs avoid making these same mistakes.

Potential Failure Causes

Often a company fails because the owner has neglected to do enough of something. For example, neglecting to save up enough funds to cover expenses, forgetting to place enough advertisements for the business, not generating enough sales, refusing to hire enough workers and setting the budget too low are all reasons why many small businesses close their doors.

Other causes involve bad business management or, in some cases, outright fraud. Companies that don't have a professional image or those that try to cut financial corners on necessary supplies or goods may lose sales. In a few cases, entrepreneurs are dishonest on their government loan applications or when obtaining a permit from their local government offices. These cases of fraud are nearly always caught, which leads to the company being closed.

Avoiding Common Business Mistakes

So how do business owners avoid making these same errors? A key step is being patient in the development and launching of the company. If you're in the process of starting your own business take time to save up at least a year's worth of expense costs before you officially open. This will give you plenty of cash to cover your start-up costs and to help you stay open during slow periods. You'll also need to establish a flexible budget that can accommodate growth or unexpected costs.

If you'll need to hire a staff, plan to hire enough employees to cover the necessary duties. If the costs are beyond your budget wait until you have the funds to do so. When you're requesting a permit from your local government or filling out company tax forms, be honest and forthright even if it ends up costing you money in the end. This will keep you from having to pay fines and penalties, or even worse, closing up.

Many cases of small business failure are completely avoidable particularly if you learn about how to deal with these issues in advance. When you build up your savings and prepare well to launch your business and secure the right amount of business funding you give your company a good chance of succeeding.

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